Sebi on Tuesday put in place a standard operating procedure for subsidiary companies planning to get delisted through a 'Scheme of Arrangement' wherein the listed holding companies and the listed subsidiaries are in the same line of business.
There are numerous listed companies which have listed subsidiaries engaged in the same line of business, and equity shares of both entities are actively traded on stock exchanges.
Both the listed holding company and the listed subsidiary can attain significant synergies by working together.
Defining the 'same line of business', Sebi said at least 50 per cent of revenue from the operations of the listed holding and listed subsidiary company must come from the same line of business, according to a circular.
In addition, at least 50 per cent of the net tangible assets of the listed holding company and the listed subsidiary must be invested in the same line of business.
Further, principal economic activities of both firms need to be under the same group as per the National Industrial Classification (NIC) Code.
In case of change of name of the listed entities within the last one year, at least 50 percent of the revenue, calculated on a restated and consolidated basis, for the preceding one full year has to be earned by it from the activity indicated by its new name.
The listed holding company and the listed subsidiary have to provide self-certification with respect to both the companies being in the same line of business.
Further, these need to be certified by the statutory auditor and Sebi-registered merchant banker.
With regard to eligibility, the regulator said shares of both companies (holding and subsidiary) will have to be listed for at least three years. Besides, the subsidiary company will have to be a listed subsidiary of the listed holding company for a period of three years.
Sebi had in June notified the Delisting Regulations 2021 which provide for exemption from the reverse book building process for delisting of equity shares of a listed subsidiary (of a listed holding company), pursuant to a National Company Law Tribunal (NCLT) approved scheme of arrangement.
Upon the scheme becoming effective, the listed subsidiary will become a wholly-owned subsidiary of the listed holding company.
To be eligible for the exemption under the route, shares of both companies should be listed for at least three years and the trading thereof should not have been suspended immediately before approval of the scheme by the board of directors of the companies.